Study/Business Case: Super Air Jet

Super Air Jet is an airline company engaged in the low-cost carriers (LCC) level in the aviation industry.
They have been in the business for the last 2 years and have been using only one type of airplane that is
Airbus A320. They started their business initially with sales of 20,000 seats per month and now they have
grown the volume to about 100,000 seats per month with a great customer satisfaction level. They have
been buying all of that 3 airplanes and were doing all the maintenance in-house (at their HUB on CGK).

Now, they have established themselves in the market in West Indonesia and are planning to expand their
business to East Indonesia. They have 3 routes established, those are CGK-SUB, CGK-KNO, and CGK-PDG
with their main HUB on CGK. Now, if they want to expand and continue doing all the activities in-house
to maintain their performance on sales and customer satisfaction, they would need a big investment to
initiate another supporting HUB on East Indonesia (DPS) and buy/rent another airplane.

In the following time, their Finance and Corporate Planning team found that there is a lower initial cost
alternative that they can take by outsourcing it to the 3rd party. However, this 3rd party was only
experienced to handle Boeing 737-800. Their Finance and Corporate Planning team also provide the
details of the data as follows:

 Total national sales forecast if they open 3 new routes on East Indonesia and 1 new connecting
route (DPS-SUB, DPS-UPG, DPS-MDC, and CGK-DPS; 1 new route needs 1 new airplane). Super Air
Jet’s revenue is around $ 50 per seat with an expected increase of 3% per year.

Year 1 2 3 4 5
Sales Qty. (Seats) 1500000 1800000 2040000 2160000 2220000

 Airplane Pricing and Maintenance Fee

Airbus A320 Boeing 737-800

Buy per Airplane
Rent per Airplane per Year
Maintenance fee per Airplane
per Year
$ 90 Million
$ 15 Million with a 1% reduction
in the subsequent year
$ 1 Million with an increase of
5% every year
$ 80 Million
$ 13 Million with a 1% reduction
in the subsequent year
$ 2.5 Million with an increase of
5% every year

 Direct and Indirect Cost

In House 3rd Party

Initial Cost (only in the first
year)
Direct Labor per Year
Indirect Labor per Year
Fuel Cost per Year
Variable Cost per Year
$ 8 Million
$ 1 Million with an increase
of 5% every year
$ 500 Thousand with an
increase of 5% every year
$ 5 Million with an increase
of 1% every year
$ 3 Million with an increase
of 5% every year
$ 3 Million with an increase
of 10% every year
$ 5 Million with an increase
of 1% every year
$ 3 Million with an increase
of 5% every year
Questions (Assumptions are allowed as long as they are not counterproductive to the data provided)

1. Based on these data, which combination of decisions is the most profitable/economical for Super
Air Jet?
2. What other factors should Super Air Jet look at for making this decision?